Changing Mortgage Rates and the Housing Market According to RLP

Dominion Lending Centre Mortgage Agent Jeff Dickson sends us a weekly rate minder. It’s clear from his more recent mailings that both the posted rates and the preferred rates are on the rise.

His recent report attributes some of the upward pressure on an unexpectedly strong US jobs report. With January job creation exceeding estimates, the unemployment rate dropped to 4.1% and wages grew at 0.3% for the month, the highest since 2009. All of this could lead to fear of an over-heated economy, which might trigger 3 to 4 interest rate increases in the US over the next year. Of course, if the US raises interest rates, the Bank of Canada is forced to follow suit to protect the Canadian dollar. We already expected 2 to 3 interest rate increases in 2018, and that probability has now increased.

With rising rates and the new OSFI stress test, Royal LePage analysts said they expect a slowdown in the housing market in the first half of 2018. The rationale for this is that buyers will have to adjust their expectations and their finances. The forecast indicates that: ‘With a large number of existing homeowners potentially failing the test when refinancing, a temporary reduction in consumer confidence may further stagnate price growth as potential buyers and sellers take a ‘wait and see’ approach.” This won’t have a negative impact however on growth markets, like the GTA.The forecast still anticipates a 6.8% increase in the aggregate home price for this region.

The changes have also had a ripple effect on rental housing:
“Seventy-six per cent of Royal LePage agents who offer rental services in the Greater Toronto Area saw a year-over-year increase in multiple offers and 68% of those respondents cited affordability as a barrier to homeownership as the number one factor driving rental demand.”